Bahrain is set to normalise diplomatic relations with Israel in an historic move that marks the latest dramatic shift in Middle East alliances.
Confirming the news, US President Donald Trump tweeted: "Another HISTORIC breakthrough today! Our two GREAT friends Israel and the Kingdom of Bahrain agree to a Peace Deal – the second Arab country to make peace with Israel in 30 days!"
Israeli Prime Minister Benjamin Netanyahu said it was a "new era of peace", adding: "We have invested in peace for many years and now peace will invest in us."
Mr Netanyahu said he envisaged "very large investments in the Israeli economy" and thanked "our friend, President Trump" for his "important help".
However the Palestinian Authority said in a statement: "The Palestinian leadership strongly rejects and denounces the US-Bahraini-Israeli tripartite declaration… and considers it a betrayal… The (Israeli) occupation controls the Palestinian lands and annexed them by military force.
"It works diligently to Judaize the city of Jerusalem, control the Islamic and Christian holy sites, and commit crimes against the Palestinian people."
Bahrain follows its neighbour the United Arab Emirates (UAE), which announced last month that it would normalise ties with the Jewish state, marking a significant change in the region.
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The UAE deal was brokered by Donald Trump's administration, and a signing ceremony to be attended by Mr Netanyahu and the Emirati foreign minister is set to take place in Washington DC on Tuesday.
It is expected now that Bahrain's Crown Prince, Salman bin Hamad Al Khalifa, will attend the ceremony too.
Not since Egypt and Jordan formed diplomatic ties with Israel, in 1979 and 1994 respectively, has any Arab country been prepared to recognise it.
The move by the UAE, and now Bahrain, upends a long-standing convention among Arab nations that they would not form any ties with Israel until the Israeli-Palestinian conflict was resolved with the formation of a Palestinian state.
Last month, just weeks after announcing their accord, Israel and the UAE marked the new ties with the first commercial flight between the two countries.
Bahrain said last week that it would allow flights between Israel and the UAE to use its airspace, following the same decision by Saudi Arabia.
The Trump administration is framing the historic emerging alliances as proof that the American president is capable of forging a new pathway in the Middle East. The developments are sure to feature as part of his re-election campaign.
The accords are motivated, in part, by the various countries' common enemy, Iran.
The Trump administration is trying to persuade other Sunni Arab nations to follow Bahrain and the UAE.
Countries including Kuwait and Saudi Arabia share America and Israel's concern over Iran, and what they see as its malign regional influence.
Saudi Arabia has signalled it is not yet ready to sign any deal with Israel, citing the Palestinian issue.
The Arab Peace Initiative of 2002, led by Saudi Arabia, made clear that any normalisation of ties between Arab nations and Israel was conditional on a settlement with the Palestinians.
The initiative states that normalisation would only follow a full withdrawal by Israel from the Occupied Palestinian Territories and the formation of a Palestinian state with East Jerusalem as its capital.
Breaking that initiative, the UAE brokered its deal with Israel after Mr Netanyahu agreed to suspend his plans to annex large parts of the occupied West Bank.
However, the Palestinian Authority said in a statement: "The Palestinian leadership strongly rejects and denounces the US-Bahraini-Israeli tripartite declaration… and considers it a betrayal… The (Israeli) occupation controls the Palestinian lands and annexed them by military force."
While the new alliances will forge important new economic, trade and tourism ties between the former foes, it is not yet clear how they might further efforts to find peace between Israel and the Palestinians – the conflict at the core of the Middle East peace process.